Politicians and experts: who can we trust in infrastructure financing and PPPs?

The floods in four states and especially Queensland have re-focused attention on Public/Private Partnerships. There is a magic mantra in infrastructure circles, “more PPPs more”, seen in Infrastructure Australia, Infrastructure Partnerships and like campaigns and publications.

Politicians have the bug.

I have been an advocate for better transport planning for almost 40 years and it is heart-breaking that current influential proponents are not doing a better job. PPPs have been falling over and there will be no improvement unless federal and state agencies do an impressive job of planning and consulting, with the private sector carrying a share of the risk and delivering real benefits.

BUT confusion reigns. The New South Wales Government’s 2009 Blueprint amounted to $350 billion ($150 billion for projects); the 2010 version was $50 billion over 10 years. Metros and rail extensions were switched on and off, and road projects were hidden. The package was said to be fully funded but the numbers did not appear in budget papers.

The Gold Coast tram project is straight subsidy: Commonwealth Government $365 million; Queensland $464 million; and Gold Coast City Council $120 million. The same applies to the Sydney tram extension along a disused freight line. The cost of London’s massive CrossRail project (£15 billion) will be raised through a mixture of contributions paid by businesses along the route, a supplementary business rate, levies on property developers, a one-third governmental subsidy and fares.

The canard has been repeated by the Sydney Morning Herald that their public transport inquiry produced “detailed accounting of the funding required, showing that projects can be fully funded and borrowings repaid from the income streams generated by commuters ready to pay for better public transport. There is a blueprint here for Barry O'Farrell and his team to think big for Sydney, and rise above what Labor has given” (“Let's have it all” editorial of 17 January).

In fact, their team’s upper budget requirement was elastic, set initially through surveys of community “willingness to pay” at $36 billion. Their thinking was that then Prime Minister Kevin Rudd would be asked for almost $1 billion a year for four years; residential ratepayers will fork out $160 and businesses about $1,000 a year; costs will be cut on the public transport systems (by NSW Labor which has endorsed a new railways industrial award that prevents that?); and car drivers will pay $7 a day in parking charges and $7.50 per trip to the CBD. Fares would rise, bus fares for example by 30 per cent and train fares by 15 per cent.

Moreover about half of the imposts - SMH or government - would fall on western and outer Sydney households and businesses which have paid taxes but been denied public transport alternatives then had to pay tolls for new road capacity. They receive no recognition or credit points. A quick calculation based on total income taxes paid in NSW in the 10 years up to June 2009, the NSW population and the number of people in the Sydney growth areas (about 1.9 million), produces a tax-paid without transport infrastructure-benefit of $110 billion.

Tolls on roads are a crippling burden on such households (such as over $90 per week car-tripping from Dural to the CBD and return). Businesses in their town centres are known to be under stress so the Rail Union’s repeated calls for imposts on businesses would be inappropriate. Households can save on mortgage costs and travel expenses when living in outer suburbs if they have a public transport alternative, with the urban structure changes over time that will result.

Australia’s COAG and state-based funding bids have a begging character, instead of all three levels of government contributing what they can through their taxation capacities.

The Metro in Washington DC is largely funded by local government exercising its leverage. The Golden Gate Bridge was built by local authorities working together. In 1928 six counties formed the Golden Gate Bridge and Highway District and then appropriated a $35 million bond issue. The last of the construction bonds were retired in 1971, with the principal and nearly $39 million in interest raised entirely from bridge tolls. Interestingly, using the exchange rate of $US3.9 to the £A1 (October 1936), the Golden Gate cost the same as the contemporaneous Sydney Harbour Bridge with approaches.

No government is prepared to adopt a comprehensive capital funding system, funding the networks and using capital and operating sources. The Sydney Harbour Bridge was a precedent. A municipal levy raised £2.1 million between 1924 and 1938, applied to the cost of approaches (£3 m).

The Sydney tram extension to Summer Hill and Dulwich Hill will promote densification and property value appreciation but without a mechanism for some of the accretion to go back into the infrastructure provision.

Professor Bob Walker, Ian Spring from 2007, and others, have pointed to shonky numbers, poor thinking, misstated impacts (such as loss of AAA ratings), and the horrible risks of continuing with one-at-a-time projects divorced from public professional analyses of overall systems and cities/regions.

Infrastructure generates short- and long-term jobs and increased economic activity. Several studies have been conducted showing that $10 billion spent in Sydney - if the projects are soundly-based - would produce about 20,000 construction jobs, 24,000 permanent jobs and ongoing annual economic efficiency benefits of over $3.5 billion. Tax yields would rise in line with the increased economic activity.

The SMH and Premier Keneally ignored the main way to fund infrastructure in a generalised way. Tax Incremental Financing (TIF) would siphon off increases in the tax base that relate to the resulting economic growth. This is common in American States.

The Property Council of Australia, in a submission to Infrastructure Australia, showed that the South West rail link would pay for itself in this manner in about 20 years, in a submission to Infrastructure Australia. They only considered transfer or sales tax, not land tax as well, and covered 75 per cent of the initial cost (the balance coming from say Federal, State and local governments). It seems that including land tax and adding a levy on council rates would roughly halve the repayment period.

Ian Spring’s “Borrow and Build” calculations showed that national infrastructure programs could be funded this way within debt limits. In his words, “A 20 year $250-300b Federal borrow and build program, involving extra expenditure of $10-$15b pa, will be necessary to deal with (the national backlog), and bring the country into a fully competitive position by 2027 … There will be no need to repay this debt, it will be self funding from the tax dividend …"

There seems to be no awareness of the incremental betterment regimes applying in the US which would be more effective than levies with less impact on affordability. Incremental capture depends on having an initial valuation then calculating the increase in values arising from an infrastructure development over time - probably 20 years (the usual life of US bond issues). A statutory share of the increase goes back into the infrastructure that produced the increase in values.

Taxpayers need to see that their contributions go into services that benefit them rather than disappear into areas that are well-provided for already or schemes which waste taxpayers’ and investors’ money.

So there are ways to pay for improvement schemes without whacking households and businesses unduly. A well-informed debate is possible at this time of national stress. The benefits would be seen over the coming centuries - just as Sydney’s “improvement generation” 100 years ago pushed that city into the forefront of world performance, we would leave our successor generations a balance of terrific benefits and affordable burdens.